1. Russian tax law changes and recent practices affecting the business with Luxembourg counterparties
Igor Ershov
Senior lawyer CMS, Russia
4 April 2017

2. Contents
Trends of the Russian tax tools related to cross-border businesses
existing practice
what is in the pipeline
Russian withholding taxes: domestic law vs Luxembourg-Russia DTT provisions
dividends
interest
royalties
other income
Practical issues of Luxembourg-Russia DTT implementation
Beneficial ownership concept - taxpayers are still to guess
what should be done to avoid tax claims
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

3. Trends of the Russian tax tools related to cross-border businesses
Existing practice
CFC rules (chapter 3.4 of the Russian Tax code)
thin capitalization rules (article 269 of the Russian Tax code)
information exchange upon requests (article 26 of the Luxembourg – Russian DTT)
transfer pricing rules (chapters 14.1 – of the Russian Tax code)
beneficiary ownership concept (articles 7, 312 of the Russian Tax code)
Additional regulations to come
common reporting standards (Russian law Num. 325-FZ of , Governmental act of Num. 834-r)
country by country reporting (bill of )
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

4. Particular attention to Other income
Russian withholding taxes: domestic law vs Luxembourg-Russia DTT provisions
Tax treatment
Russian Tax code
DTT
Dividends
15%
5% or 15%
Interest
20% No
Royalty
Other income
Particular attention to Other income
Positive aspect
Negative aspect
No capital gain tax from selling the shares in Russian property-rich companies, if the parties to the share deal have no presence in Russia
Any other passive income paid by the Russian company to its shareholders is treated as deemed dividends
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

5. Practical issues Luxembourg-Russia DTT implementation
Treatment of investments for the purposes of DTT
direct investment, purchase of Russian shares from third parties vs contributing the Russian shares into the Luxembourg company
Participation requirement
10% of share capital + 80,000 EUR (FOREX impact considerations)
Tax certificate issuance
issuing body: Minister of finance or its authorized
representative + Department on direct taxes collection
Tax certificate formalities
apostil stamp + periodicity
Beneficial ownership concept
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

6. What is not considered as an investment for DTT purposes
RusCo2
RusCo1
money contribution
LuxCo
Russia
Luxemburg
shares of RusCo2 contribution
RusCo1
LuxCo
RusCo2
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

7. Beneficial ownership concept – taxpayers are still to guess what should be done to avoid tax claims
set of documents for DTT application
certificate + letter from the shareholder + attachments
letter from the shareholders on beneficial ownership of income:
the shareholder does not act as an intermediary (agent or nominee);
it has a full right to use and enjoy the received income;
it does not have a contractual or legal obligation to pass on the payments received to another person.
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

8. Beneficial ownership concept – taxpayers are still to guess what should be done to avoid tax claims
attachments to the letter
for dividends – charter + minutes (resolution)
for interest – charter + financial accounts
for royalty – charter + IP documents
practical recommendations
elaboration of “substance” criteria
introducing the respective sections into the local policies
contractual reservations
beneficiary concept in other Russian laws
anti money-laundering law
contractual relationship with state-owned enterprises
Russian tax law changes and recent practices affecting the business with Luxembourg counterparties | 4 April 2017

9. Thank you for your attention!
Igor Ershov
Senior lawyer CMS, Russia T E
CMS, Russia
Moscow, Presnenskaya nab, 10, C T: F: